In an environment where we want to be buying stocks, we primarily want to focus on areas of relative strength. With that being said, we also want to be aware of those areas showing relative weakness so that we can avoid them on the long side and short them when the environment is more conducive to shorts.
One clear area of weakness remains Nifty PSU Banks, so let’s take a closer look at what’s going on.
Two months ago we began looking at this laggard of a sector as its Equally-Weighted Index came into long-term support. Instead of mean reversion higher, we got continued weakness and it sits today near its lows on an absolute and relative basis.
Here’s a daily chart of the Cap-Weighted Nifty PSU Bank Index stuck below support/resistance near 2,680. Momentum failed to reach overbought territory during the recent rally, and are now rolling over despite the broader market pushing to new highs.
It doesn’t get much weaker than that.
Click on chart to enlarge view.
This remains a clear area we want to be avoiding…and if you have to short anything in this environment then this index and its components are a great place to look.
If this sector can’t rally when the market is moving higher, we don’t want to be around for the action when the market starts to pull back.
Thanks for reading and let us know if you have any questions!